Cree: Buy Despite Weak Results

Cree (CREE) recently announced results for the first quarter of fiscal year 2016. Its net revenue was $425.5 million, down 1 percent year-over-year, but above the midpoint of the company’s forecasted range. Going forward, Cree has also provided revenue guidance for the second quarter of fiscal year 2016 and estimates revenue in the range of $425 million to $445 million.

Cree also announced first quarter non-GAAP net income of $22.1 million, or $0.21 per diluted share as against $29.6 million, or $0.24 per diluted share in the first quarter of fiscal year 2015.

Cree has reiterated earnings guidance for second quarter of fiscal year 2016 and expects adjusted net income to be in $21 million or $0.21 per diluted share to $27 million or $0.26 per diluted share range.

The company reported a year-over-year decline in both its top and bottom lines primarily due to the company having realized $15.9 million of strategic restructuring costs for its core LED business. However, going forward, Cree will continue getting better. Let’s see why.

Focusing on portfolio improvements

Cree has improved its LED downlight portfolio by launching the innovative KR8TM downlight, which is the company’s first eight-inch downlight, and the latest introduction of LR6TM downlight, providing much better light at a reasonable price. Cree recently introduced its innovative XLamp® XQ-E High Intensity LEDs which is the industry's first offering of superior-power color LEDs designed for delivering impressive optical performance.

In addition, the company has launched a new Cree LED bulb, much better than the existing bulbs in the market and offers significantly brighter light with impressive performance, better life and notable energy savings.

The lighting technology major is expected to be keenly focused on delivering significant shareholder returns through strategic share repurchases and timely dividend offerings and in line with its continued commitment to offer outstanding shareholder’s value. Moreover, Cree is focused on expanding its lighting offerings portfolio through the planned and continuous introductions of newly designed products.

Cree has been recently awarded a follow-on agreement by the U.S. Air Force that would allow the usage of a superior-performance power electronic module in the F-35 Joint Strike Fighter. The key lighting company is believed to be well-positioned for outstanding long-term growth, given the positive sentiments of the key investment analysts and new contact won with the U.S. Air Force.

Conclusion

According to me, investors are advised to go long Cree due to an impressive PEG ratio of 0.66, which indicates healthy growth and is lower than the industry’s growth average of 0.97. Also, Cree’s growth initiatives are supported by its cash-rich balance sheet with significant total cash of $713.19 million against smaller total debt position of $200 million. Hence, it will be a good idea to buy Cree shares for the long run.